NEW ZEALAND Law and Practice Contributed by: Christopher Young, MinterEllisonRuddWatts
Misuse of Market Power Prohibition Enforcing exclusive territories may also trigger the misuse of market power prohibition. This applies where the franchisor holds substantial market power and the enforcement of the clause has the purpose, effect or likely effect of substantially lessening com - petition in a defined market. Restraint of Trade: Common Law Doctrine Exclusive territories also constitute a “restraint of trade”. Under New Zealand common law, a restraint of trade is unenforceable unless the party seeking enforcement establishes that it is reasonably neces - sary to protect a legitimate commercial interest (eg, goodwill). Typically, franchise agreements will include a restraint of trade on that basis. 6.3 Requiring Franchisees to Purchase Specific Goods and Services The franchisor may require a franchisee to purchase certain products or services from the franchisor or its nominated suppliers, provided this does not contra - vene Sections 27, 30 or 36 of the Commerce Act 1986. A provision in a franchise agreement that requires fran - chisees to purchase certain goods or services from a third-party supplier may be considered a market allocation provision (a type of cartel provision) if the franchisor and franchisee are competing to acquire those goods or services. There is an exception under the Commerce Act for joint buying and promotion agreements. The joint buying and promotion agreements exception applies where a provision in a contract, arrangement or under - standing: • relates to the price for goods or services to be collectively acquired by some of the parties to the arrangement; • provides for joint advertising of the price for the resupply of goods or services acquired collectively; • provides for a collective negotiation of the price of goods or services which are then purchased individually; or • provides for the purchase of goods or services to occur via an intermediary.
The joint buying and promotion agreements exception only excludes the application of price fixing, not other cartel provisions such as market allocation provisions. The provision that requires the franchisees to pur - chase specific goods or services from certain parties must also not have the purpose, effect or likely effect of substantially lessening competition in the relevant market, as prohibited under Section 27 of the Com - merce Act. Where the franchisor holds substantial market power, such a requirement on franchisees may also breach the misuse of market power prohibition if it has the purpose, effect or likely effect of substantially lessen - ing competition in a defined market. 6.4 Channel Reservation Franchisors can reserve certain channels, as long as the reservation: • is not a cartel provision, or is a cartel provision but an exception applies; • does not have the purpose, effect or likely effect of substantially lessening competition, in breach of the general prohibition against anti-competitive provisions; and • (if the franchisor has substantial market power) does not have the purpose, effect or likely effect of substantially lessening competition in that market. Channel reservations in franchise agreements, such as allocating online platforms or other sales channels, may be considered market allocation or output restric - tion provisions (which are cartel provisions) where the franchisor and franchisee compete for the supply of goods or services. As with exclusive territories, cartel provisions are prohibited unless an exception applies. The most relevant exception is the collaborative activ - ity exception, though the vertical supply contract exception may also apply in some circumstances. 6.5 Vertical Agreement Block Exemptions The Commerce Commission can authorise certain provisions in contracts, arrangements or understand - ings, or conduct that may breach competition laws, if the public benefits outweigh the anti-competitive detriments.
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